Monthly Archives: March 2014

Ex govt adviser: “global market shock” from “oil crash” could hit in 2015

Oil is not scarce. We’re nowhere near running out. What we are seeing however is diminishing returns on investment for the extraction of oil. I’m not sure if you’ve seen the news regarding the oil major’s profit warnings recently. Oil extraction has been the most profitable business in the history of the earth, but has in recent months been issuing profit warnings, with major players such as Shell having to sell assets (like drilling leases) to pay their dividends (https://www.google.co.nz/search?q=oil+majors+profit+warning) – effectively ‘eating their seed corn’ of future profitability.

Like all good businessmen, the oil majors went after low effort profits first, in the form of easy to extract reserves. Once these were depleting, they ploughed profits back into improved technology to go after the next easiest reserve, and so on. In the 1930’s in Texas for example, you could get 100 barrels of oil out for every 1 barrel you put to extraction effort. This 100:1 ‘Energy Return on Energy Investment’ (EROEI, or often EROI) gave fantastic profits. As these reserves are now declining in production, and they are having to go for reserves with much higher effort (and therefore lower EROI) to extract such as tar sands (Canada), oil sands (Venuzuala), fracking and deep sea drilling (Global), there is a decreasing profit, as the marginal cost of production (the amount it costs to extract a barrel, in both energy and monetary terms) climbs. The net result is lower profits, and lower ‘net’ energy available to society to power our current way of life. See chapters 1&3 of this book: http://www.postcarbon.org/end-of-growth-chapters/ – free to read online – for more detail.

From a recent Guardian article:

…a leaked email from Shell’s head of exploration to the CEO, Phil Watts, dated November 2003:

“I am becoming sick and tired of lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/ optimistic bookings.”

Leggett reports that after admitting that Shell’s reserves had been overstated by 20%, Watts still had to “revise them down a further three times.” The company is still reeling from the apparent failure of investments in the US shale gas boom. Last October the Financial Times reported that despite having invested “at least $24bn in so-called unconventional oil and gas in North America”, so far the bet “has yet to pay off.” With its upstream business struggling “to turn a profit”, Shell announced a “strategic review of its US shale portfolio after taking a $2.1bn impairment.” Shell’s outgoing CEO Peter Voser admitted that the US shale bet was a big regret: “Unconventionals did not exactly play out as planned.”

…Despite “soaring drilling rates,” US tight oil production has lifted “only around a million barrels a day.” As global oil consumption is at around 90 milion barrels a day, with conventional crude depleting “by over four million barrels a day of capacity each year” according to International Energy Agency (IEA) data, tight oil additions “can hardly be material in the global picture.” He reaches a similar verdict for shale gas, which he notes “contributes well under 1% of US transport fuel.”

…”Shale-gas drilling has dropped off a cliff since 2009. It is only a matter of time now before US shale-gas production falls. This is not material to the timing of a global oil crisis.”

In an interview, he goes further, questioning the very existence of a real North American ‘boom’: “How it can be that there is a prolonged and sustainable shale boom when so much investment is being written off in America – $32 billion at the last count?”

…The 2015 oil crunch forecast, Leggett writes, is corroborated by the Industry Task Force report:

“In this report we updated the evidence that defines global oil reserves and extraction rates, and concluded that the global peak production rate for oil would likely occur within the decade, very likely by 2015 at the latest – at a value no higher than 92 million barrels per day.”

Based on flow rate data, the report found that “increases in extraction would be slowing down in 2011–13 and dropping thereafter.” From then on, global oil production would drop “at 1% a year from 2015. If the then IEA forecast of demand rising to 105 million barrels a day in 2030 were to prove correct, supply would fall short in 2015.”

Ex govt adviser: “global market shock” from “oil crash” could hit in 2015 | Nafeez Ahmed | Environment | theguardian.com.

[For more on the problems with projected shale oil and shale gas output via fracking (mainstream projections are almost always from organisations with vested interests and reasons to talk up their investments), please review the free to view online serialisation of the book by Richard Heinberg (author of the much respected ‘Museletter‘): Snake Oil and a longer and more in depth technical report by David Hughes, Drill Baby Drill.]

Additional to the above issues with energy supply, we’re close to the end of the most recent 7(ish) year cycle in global financial terms. I’d just like to point out a few facts:
– The global financial crisis was in a large part the result of the aforementioned reducing net energy available to society. There are a few different ways to say this. Lacking space and time to really summarise well this here, here are a few links:  For the views of a Wharton School of Economics Professor and advisor to the EU: https://www.youtube.com/watch?v=9e0UofNMzKM (I’d only watch the first 12 minutes or so, he goes on a bit about technological fixes that I have doubts about after that), or a well known commentator with impressive credentials (http://www.financialsense.com/contributors/nicole-m-foss) http://vimeo.com/66770756#at=0, or an Actuary http://ourfiniteworld.com/2014/03/21/oil-limits-and-the-economy-one-story-not-two/, or a Professor of Engineering at Canterbury University http://www.youtube.com/watch?v=KZ5Lb_ySIEg
– We’ve done nothing to fix the underlying problems of economics. In fact, we’ve rewarded banks globally for failed business models through QE, et al, allowing them to assume a larger, and therefore more threatening role in this current cycle. For more (readable, rather than hugely technical) commentary on this to further your understanding if my statement is at all controversial, I’d highly recommend this blog’s economics posts.
– Given that they have a literal ‘license to print money’ (http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity) and that they should be insanely profitable, banking must be restructured, because they can’t even remain profitable with the cards stacked FOR them…

 

Why am I pointing all this out? I guess my concern is that whilst I agree with the likes of Dave Kennedy that we need to remain positive, and work towards more renewables, etc, there’s a piece missing from the story. In light of the risks I’ve outlined above, which are not discussed very much in public debate in Southland, I think we’ve got to make some choices about what our priorities are going forward.

It’s all very well saying (as I have in the past) IF we’d made serious inroads into a ‘renewables transition’ 3-4 decades ago when this was much less urgent, we’d have had time to build some m

ore of the infrastructure that is needed, but even then we’d have problems. It’s simple the case, as Susan Krumdieck makes in a recent presentation (already linked to above) that that infrastructure needs maintaining too, and that infrastructure maintenance generally requires fossil fuels at many parts of the supply chain for replacement parts, etc.

What the current popular focus on renewable energy masks, is the far more pressing need to deal with basics of survival such as water and food, particularly in light of probable failures in supply chains as a result of cascading failures in Finance, Commerce and Government that seem very likely in the coming decade, and possibly the earlier part of it…

My feeling currently is that we have got to get back to basics, producing food locally (in Southland there are a few different efforts underway to do something about this, such as ‘Love Local Charitable Trust‘ and the Farmers Market, Community Markets, etc), figuring out how drinking water supply works (hint – rainwater storage tanks…) if grid electricity becomes unreliable or unavailable (yes, Southland has Manapouri, but even that is reliant on fossil fuels for maintenance, and what about maintenance of the grid infrastructure, or even god forbid a major alpine fault earthquake, and the probable long term effects on grid electricity transmission lines in a transport fuel scarce future?), etc.

Discerning the future and responding appropriately is a very difficult task, and it’s why I’m involved with the ‘Wise Response‘ appeal, which asks government to perform a broad spectrum risk assessment, aiming to help New Zealand as a nation come to terms with the global risk environment and shape appropriate policy response. Have you given your support to the Wise Response appeal yet?

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The China Clock Goes Tick Tock – repost from The Automatic Earth

Reliance on China for export a good idea. Probably not…

How do we know what’s really going on in China’s economy? Given that it’s – at least officially – under central control, that’s not easy. The Chinese leaders know their way around spin and propaganda; one might argue that their lives depend on it. Still, maybe following and connecting the dots as they appear in the news can be helpful. So I thought I’d squirrel together a few data and talking points from the past week, and see what comes out.

Of course the biggest news came 3 weeks ago, when the Custom Administration announced that Chinese exports in February dropped 18.1% from a year earlier. No matter what anybody may claim about Lunar New year, that’s a devastating number. It shows that China is simply losing its buyers. And for an economy that is singlemindedly focused on exports, that is earth shattering. But from inside the nation as well, there are increasing reports that things are not running smoothly.

The manufacturing index seems well embedded below the 50 break even point.

China Manufacturing Gauge Falls as Slowdown Deepens (Bloomberg)

China’s manufacturing industry weakened for a fifth straight month, according to a preliminary measure for March released today, deepening concern the nation will miss its 7.5% growth target this year. The Purchasing Managers’ Index from HSBC and Markit dropped to 48.1, compared with a 48.7 median estimate [..]

Real estate prices are starting to fall. Not everywhere, nor everywhere at the same pace, but for the many dozens of millions who’ve put their money in apartments, this is a grave worry.

Angry Chinese Homeowners Vent Frustrations After Price Cuts

Groups of angry homeowners put up banners and demanded their money back after Hong Kong-listed property developer Wharf Ltd. cut prices on new homes in an eastern Chinese city [..] They said they wanted their money back after prices at the project, called Phoenix Lake Garden, were cut by as much as 16% [..]

Debt levels among local governments are probably one of the murkiest issues in the country. It hardly matters at all what the state auditor says, because government-related debt is just the tip of the iceberg. In China, when you say local government, you say shadow banking. Local officials kept themselves sitting pretty through shadow borrowing. Where the money came from, how leveraged it is, who knows? WHat we do know for sure is that it’s much more expensive than ”official” loans.

China’s Local Government Debt Burden Varies Widely: Moody’s (CNBC)

China’s state auditor said in a report in December that local governments owe almost $3 trillion in outstanding debt as of the end of June last year, up 67% from the last audit in 2011. [..] Among the top 31 upper-tier local governments reporting government-related debt on their websites, indebtedness ranged from 69% to 156% of revenues, with the median at 108%, Moody’s said.

There are new forms of lending popping up, if only because the demand is so great due to debt needing to be rolled over and serviced, lest the scores of little emperors find themselves exposed.

China Banks Drained by Internet Funds Called Vampires (Bloomberg)

It has been labeled a “blood-sucking vampire” by a prominent commentator on state-run television. Executives at China’s largest banks have called for regulators to curb its rapid expansion. [..] The focus of this ire is Internet financing, specifically Yu’E Bao, the fund pioneered nine months ago by Alibaba Group Holding Ltd.’s online-payment affiliate Alipay. Its ease of use, involving a few taps on a smartphone, has drawn deposits from 81 million customers, more than the population of Germany, as they chase returns higher than China’s banks can offer. The total exceeded 500 billion yuan ($80 billion) as of Feb. 28 [..]

Despite surging pollution levels, China actively keeps drawing up plans to get more people into cities. It has understood that this is closely linked to growth numbers. We may find that short-sighted, and it is, but take a step back and imagine what US-style urban sprawl would look like on the scale of China.

China’s Urbanization Loses Momentum as Growth Slows (Bloomberg)

The pace of migration of rural Chinese to cities, a dynamic hailed by Premier Li Keqiang as key to the nation’s development, is set to slow by a third in coming years [..] Today’s report from the World Bank and the State Council’s Development Research Center, which helped inform the government’s plan, recommends changes including on land use to spur more-efficient and denser cities. That can save China $1.4 trillion from a projected $5.3 trillion in infrastructure spending over the next 15 years [..]

 

Bank runs look inevitable in China. At the first sign that Beijing loses only a little bit of control, people will demand cash to put into their mattresses. Cash that, just like in western nations, is of course not there if everyone wants it at the same time. The government’s biggest nightmare? There are many, but it might well be.

Hundreds Rush To Rural Chinese Banks After Solvency Rumours (Reuters)

Hundreds of people rushed on Tuesday to withdraw money from branches of two small Chinese banks after rumours spread about solvency at one of them, reflecting growing anxiety among investors as regulators signal greater tolerance for credit defaults. The case highlights the urgency of plans to put in place a deposit insurance system to protect investors against bank insolvency, as Chinese grow increasingly nervous about the impact of slowing economic growth on financial institutions.

Or could this be the biggest nightmare? China allegedly has 90,000 property developers in a system that even if it runs well only has space for maybe 30,000. How do you bring down numbers like that in an orderly fashion? I’m very glad that’s not my job. How many of those developers will go down with badly built properties, huge levels of bad debt and scores of very angry “investors”?

High Debt, Slow Sales Loom Over Chinese Property Firms (SCMP)

All eyes are now on a few Chinese real estate developers particularly vulnerable to slow sales and tight credit, as mainland China’s property market enters a new downturn. [..] At the end of June, Glorious Property (36%) and Hopson (42.8%) had the lowest ratio of cash versus short-term debt among all mainland Chinese developers rated by Moody’s.

China’s stimulus far outnumbers anything the US has done. And that’s when you get these insane debt levels. Which may be sort of bearable, temporarily, when exports keep growing at double digit rates. Not when they’re down 18%. Note also that China now needs $7-8 of new debt to generate $1 of economic growth, approaching levels that are set to doom western economies.

China Finds The Credit Habit Hard To Kick (Satyajit Das)

Chinese government debt, including local government debt, is about 55% of GDP –about $5 trillion (£3 trillion) – an increase of about 60% from 2010.

But the official Chinese government debt figure may not be complete, as it may exclude debts from local governments and central departments outside the finance ministry. If these items are included, China’s government debt including contingent liabilities would be higher, perhaps 90% of GDP. There has been a parallel increase in private sector debt. Corporate debt has increased sharply, approaching 150% of GDP. Traditionally considered compulsive savers, Chinese households have increased borrowing levels from about 20-30% to 40-50% of GDP. [..]

Another measure is the credit gap – the difference between increases in private sector credit growth and economic output. Research studies have found that 33 countries with credit gaps experienced a subsequent rapid slowdown in growth, typically by at least 50%. In China, the credit gap since 2008 is over 70% of GDP. Chinese credit intensity (the amount of debt needed to create additional economic activity) has increased. China now needs about $3-$5 to generate $1 of additional economic growth, although some economists put it even higher, at $6-$8. This is an increase from the $1-$2 needed for each dollar of growth 8 to 10 years ago.

I personally find this one especially worrisome, because it raises the question: where do Chinese industry and Chinese local government get their credit? And under what terms? As a local official, if you need those $7-8 of new debt to generate $1 of growth, you’re probably going to take it, as long as interest rates allow for it. But what are you getting your community into for the future?

Who are China’s lenders? How solid are they? How leveraged? What’s the level of bad loans they already have on their books? And who are the borrowers? Does either side do proper research on the other?

In the end, just about everything is state owned, all factories, enterprises etc. And as we know from history (Soviet Union), parties involved figure out very quickly that state enterprises don’t need to make a killing; the profit would only go to the state anyway. So buyers, suppliers, middle men and local officials start skimming off profits.

A company will buy an X amount of steel or copper with credit from lender Y. It will then turn to lender Z and use the steel as collateral to get credit for the purchase of an even larger amount of copper or steel. And down the line, who is worth what anymore? The individuals involved have all loaded up their pockets, preferably with dollars, but what’s going to happen to the company that’s left with all that steel? I would expect imports to start falling quite dramatically.

Hong Kong’s Soaring Bank Exposure to China Sparks Credit Concerns (Reuters)

In just a few years, Hong Kong banks have ramped up lending to China from near zero to $430 billion [..] Foreign bank claims on China hit $1 trillion last year, up from nearly zero 10 years ago, Bank of International Settlements data shows. The biggest portion of that is provided by Hong Kong, according to analyst estimates of the BIS data. The $430 billion in loans outstanding represents 165% of Hong Kong’s GDP [..] By the end of 2013, Hong Kong banks’ net claims on China as a percentage of their total loan book was nearing 40%, compared with zero in 2010.

If Beijing no longer offers implicit guarantees of loans state banks have put on their books, these banks are going to be a whole lot worse off than merely “spooked”. And the economy will become even more dependent on financing from the deep dark shadows. Beijing has put so much money into the economy that doubling up on that is hardly an option anymore. What seems left for Xi and Li now is to try and manage the path down. Whether that’s even an option is a great unknown and anyone’s guess.

Spooked By Defaults, China Banks Begin Retreat From Risk (Reuters)

Some of China’s struggling firms are finally getting the reception that regulators have been hoping for — a cold shoulder from banks in the form of smaller and costlier loans. [..]There are signs that even state-owned firms, in the past fawned over by lenders for their government connections, have to contend with higher rates, lower lending limits and more onerous checks by banks. “Interest rates are going up 10% for the entire industry …” [..]

Some gauges of China’s corporate debt are already flashing red. Non-financial firms’ debt jumped to 134% of China’s GDP in 2012 from 103% in 2007, according to Standard & Poor’s. It predicted China’s corporate debt will reach “stratospheric levels” and become the world’s largest, overtaking the United States this year or next.

Don’t be surprised if heavy industry in China gets a series of very hard blows. The levels of leveraged finance will be crucial, and it’s not easy to be confident in that respect.

Default Risks Surge At China Steel Mills (FT)

Chinese steel mills were suffering a medley of woes in mid-March as sales slowed, production levels slumped and profits plunged, according to an investment bank survey published on Tuesday that foreshadows the rising risk of debt defaults in the world’s largest steel producer.

Macquarie Commodities Research, quoting a proprietary survey of Chinese steel mills and traders conducted in mid-March, found that large, medium and small steel mills were all enduring a contraction in orders compared to the same period in February, and profits had declined to historic lows. “Looking at profitability, it is clear why the smaller mills are making the largest cuts (in production) – for the first time in the history of the steel survey not one smaller mill reported that they are making money …

Oh yeah, why not give the developers, of which there are far too many to begin with, the option to sell mortgage-backed securities and things like that, offering people more great returns on their investments that way. Worked great in the US!

Chinese Developers Seek Alternative Financing As Investors Grow Wary (Reuters)

China’s property developers are turning to commercial mortgage-backed securities and looking at other alternative financing as creditors grow more discriminating in the face of rising concerns about the country’s real estate and debt markets. Bond buyers are shying away from second-tier developers because property sales have cooled as the economy slows. The expected bankruptcy of a local developer and the country’s first domestic bond default this month have heightened scrutiny of borrowers. [..]

Chinese regulators last week allowed developers Tianjin Tianbao Infrastructure Co. and Join.In Holding Co. to offer a private placement of shares, opening up a fund raising avenue that had been closed for nearly four years. New rules were also unveiled last week allowing certain companies to issue preferred shares [..]

Big one. Importers backing out of deals. A system built on quicksand falls back to earth. They have to pay back the loans they bought the soy and rubber with, and are squeezed between those payments and less demand for their products. China’s like an oceanliner at full steam ahead that needs to step on the brakes. Too much inertia.

China Soybean, Rubber Importers Renege on Deals (WSJ)

Chinese importers of soybeans and rubber are backing out of deals, adding to a wide range of evidence showing rising financial stress in the world’s second-biggest economy. Most purchases are private, with little data on the volumes affected, but traders at Asian trading firms say they are seeing a sharp rise in canceled contracts this year while other buyers are demanding heavy discounts. The U.S. Department of Agriculture confirmed that China has canceled orders for 517,000 metric tons of soybeans … [..]

The cancellations are a big worry for the commodity markets as exporters around the world had relied for years on China’s insatiable appetite for a wide range of raw ingredients. But now as jitters rise over the health of the economy, the fallout is rippling through into agricultural commodities, just weeks after the price of copper and iron ore tumbled on worries they had been used in risky Chinese financing deals. [..]

Rubber prices have dropped more than 20% since the beginning of the year, due to worries over China’s slowing economy and a global surplus of the commodity. Many sellers who bought at high prices are unwilling to sell at a loss, pushing up stocks at the port of Qingdao to near-record levels recently. Stockpiles in some other commodities like soybeans and iron ore are also high as buyers hang on.

More developers, more trouble. Pray tell, what’s the difference with the US, Ireland or Spain in 2006? Well, true, Chinese debt may well be even more leveraged.

China’s Developers Face Shakeout as Easy Money Ends (Bloomberg)

The collapse of a Chinese developer in a city south of Shanghai foreshadows a shakeout among the nation’s almost 90,000 real estate companies as the government reins in credit and the housing market slows. [..] Zhejiang Xingrun’s demise comes after a policy shift by Premier Li Keqiang to tighten credit. The effort to contain surging home prices comes after they climbed 60% since the government’s 4 trillion yuan of fiscal stimulus in 2008 to bolster the economy after the global financial crisis. Officials have stepped on the brakes even as economic growth was already estimated to grow 7.4% this year, the slowest pace since 1990 [..] China’s seven-day repurchase rate, which measures interbank funding availability, hit a record high of 10.8% on June 20

Bad banks are rarely a good idea. China is no exception. Wait till the state banks begin to wobble, that should be fun.

China’s Rapidly Expanding Black Box (WSJ)

China’s “bad bank” experiment is entering unchartered territory. China Cinda Asset Management, created as a bailout vehicle for China’s bad debts, is scooping up distressed loans at blistering pace. Assets rose by 51% last year to 384 billion yuan ($62 billion), much faster than earlier management guidance of 20% to 30% [..]

A loan bought for 30% to 40% of face value, as seems the company’s historical precedent, should provide enough cushion. But investors know little about the assets. Debt backed by a closed coal mine or property in a ghost city might be worth even less. Cinda, like much of China’s financial system, is still in many ways a black box. In the meantime, Cinda’s financial performance is weakening. Return on assets fell to 2.9% in 2013 from 3.4%, the third straight year of decline. And despite the rise in leverage, return on shareholder equity fell, to 13.8% from 15.8%.

So, anybody feel good about China after all that?

China. A behemoth government stimulus since 2008, a shadow banking system that has grown exponentially and is as opaque as can be, and a level of corruption most South American countries cannot touch. What’s not to like? And then it all comes back to earth. The transition from central control to free(r) market is never going to be easy, trying to juggle both at the same time is another thing still. And yes, China’s easily big enough to drag us all down with it.

I don’t know about you, but I don’t see this end well. The sunny side, though, is that we’ll need to start making a lot of our own stuff again. Sunny because, you know, we’ll create jobs. And can we please not do all the useless plastic trinkets, have a little more taste when we rebuild our manufacturing?

 

The China Clock Goes Tick Tock – The Automatic Earth.

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Science rules, okay?

This guest post is from George Preddey, and is presented here without modification. It is the 14th submission George has written over a period of some years. I’m a member of the Wise Response committee with George, and upon realising that he had submitted this without making it available online, I received permission from him to reproduce it here.


20 March 2014 (6 months prior to the General Election)

To: All Members of the New Zealand Parliament  Most Chairs/Mayors of Regional/City/District Councils  Many media, scientific, faith, and environmental organisations and individuals

 [original in digital format from george.preddey@xtra.co.nz]

Science rules, OK?

George Preddey PhD

[retired futurist/physicist with six grandchildren and no party political affiliations]

Seven perceptive insights

[i] Two things are infinite, the universe and human stupidity, and I am not yet completely sure about the universe.” Pre-eminent physicist Professor Albert Einstein, 1947. Refer Endnote [2]

[ii] “The unleashed power of the atom has changed everything except our thinking. Thus, we are drifting toward catastrophe beyond conception … Scientists who released this immense power have an overwhelming responsibility … to harness the atom for the benefit of mankind and not for humanity’s destruction … We shall require a substantially new manner of thinking if mankind is to survive.” Professor Albert Einstein, 1946. [3]

[iii] “The science of climate change is … compelling us to act. And let there be no doubt in anybody’s mind that the science is absolutely certain … Think about it this way: all 10 of the hottest years on record have actually happened since 1998 … Scientists now predict that by the end of the century, the sea could rise by a full meter (putting) countries into jeopardy, entire cities at risk … California (is) now experiencing the 13th month of the worst drought in 500 years … I saw with my own eyes what the Philippines experienced in the wake of Typhoon Haiyan.” United States Secretary of State John Kerry, 2014. [4]

[iv] “We should not allow a tiny minority of shoddy scientists and extreme ideologues to compete with scientific facts … Everyone and every country must take responsibility for (human-induced climate change) and act immediately … The science is unequivocal.” United States Secretary of State John Kerry, 2014. [5]

[v] “Western developed nations are particularly exposed to adverse trends … because globalisation has created a lethal divergence between burgeoning consumption and eroding production, with out-of-control debt used to bridge this widening chasm … The economy as we have known it for more than two centuries is beginning to unravel.” Tullett Prebon, 2013. [6]

[vi]“Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”John Maynard Keynes. [7]

[viii] “The survival of human civilisation beyond this century will depend on the extent to which global political, military, economic, and business leaders act on evidence-based advice from scientists rather than act on ideologically-based advice from economists.” (Anon, 2014.) [8]

Infinite human stupidity

On reflection as a 72 year-old retired futurist/physicist with six grandchildren and no party political affiliations, I can identify with Einstein’s conclusion that two things are infinite (perceptive insight [i] above). In some thirteen (13) previous submissions, I have attempted to alert key decision makers and those who influence them (evidently with minimal effect) to at least three existential threats to human civilisation posed by (infinite?) human stupidity. These include ozone depleting substances (now resolving), nuclear war (an increasing threat), and human-induced climate change (an increasing threat). [Endnote [1] contains a list of these 13 previous submissions (50,285 words)]

Future contingencies

Wise Response is a group of prominent New Zealanders from a wide range of professions and backgrounds who are calling for a cross-party risk assessment of New Zealand’s vulnerability to climate, energy and financial threats to a fossil-fuel-dependent society. The Wise Response campaign was officially launched on 8 March 2013. Wise Response will be presenting a submission to Parliament on 9 April 2014 on behalf of all New Zealanders regardless of political persuasion, urging the Government to undertake a national risk assessment in five areas of economic/financial security, energy and climate security, business continuity, ecological/environmental security, and genuine well-being.

Wise Response’s proposed national risk assessment has historical precedents in analyses undertaken by the New Zealand Commission for the Future (CFF) during the early 1980s. In 1981 in accordance with its work plan agreed with the Government, the CFF published Future Contingencies 1: Natural Disaster [9], the first in a ‘Future Contingencies’ series. It reported on a peer-reviewed science-based study of potential climatic and tectonic disasters and concluded (p71) that: “The natural environment of New Zealand is often perceived in terms of the resources it represents. This beneficent viewpoint should be tempered by warnings of future … disasters … Recognition of the potential for a future disaster is a necessary first step towards its mitigation or avoidance.” An unprecedented drought in the North Island (2013) and earthquakes (2011) and flooding (2014) in Christchurch indicate elements of prescience in Future Contingencies 1: Natural Disaster (1981).

Subsequent reports in the ‘Future Contingencies’ series included: Future Contingencies 2: Societal Disaster (A Parr, published 1982); Future Contingencies 3: Economic Disaster (unpublished, a casualty of the CFF’s disestablishment but also prescient considering subsequent global economic crises); and Future Contingencies 4: Nuclear Disaster [10] published in 1982 (despite the CFF’s disestablishment in that same year as outlined below). I strongly endorse Wise Response’s proposed national risk assessment in 2014 (but with one caveat [11]).

Graphic example [1] of human stupidity: ozone depleting substances (ODS)

ODS are no longer the existential threat to human civilisation this century that they were last century. After completing a PhD in physics at VUW (1967) and working as an upper atmospheric physicist in DSIR (1968-70), I felt compelled in 1974 by a 3pp paper by Molina and Rowlands in the journal Nature [12] to warn the New Zealand public about the threat posed by ODS. Its executive summary [13] still continues to chill (burn?) me today. My warnings via the press [14] and TV [15] evidently had an impact: spray can deodorant and sunscreen purchasers began to exercise choice over aerosol propellants and a major US manufacturer of ODS sued me for $US3m ($NZ5m). The lawsuit lapsed over a legal technicality [16] but was traumatic for this reticent physicist. The Montreal protocol, an international agreement to phase out ODS taking effect from 1989, shows my concerns in 1974 were not entirely unreasonable. However the agreement reflects commercial opportunism rather than rational scientific reasoning prevailing [17]. If the protocol is adhered to – New Zealand is currently under-performing [18] – the ozone layer is predicted to more-or-less recover by 2050. Molina and Rowlands received the Nobel Prize in 1995 for their work on ODS. I can claim no credit but am relieved to have escaped a law suit of ca$NZ15m (in 2014 dollars).

The Earth is 4.6 billion years old. Primitive cyanobacteria evolved 3.6 billion years ago. Complex terrestrial life evolved much later: plants (475 million years ago); insects (400mya); reptiles (300mya); mammals (200mya); and birds (150mya). Anatomically modern humans evolved just 0.2mya. It wasn’t until oxygen released by cyanobacteria formed an ozone layer protecting Earth’s surface from intense solar UV radiation that terrestrial life became possible. To this retired futurist/physicist with six grandchildren, it beggars belief that terrestrial life potentially faced mega-extinction by manufactured for-profit ODS used in human deodorants and sunscreens. How could humans have been so stupid?

Graphic example [2] of human stupidity: nuclear weapons stockpiles

As a retired futurist/physicist, my most engrossing employment opportunity was undoubtedly as a member of the CFF Secretariat, informed by my upper atmospheric physics research at VUW and DSIR and by my ODS experience outlined above. Future Contingencies 4: Nuclear Disaster [10] was the final publication in the ‘Future Contingencies’ series. The response of the Muldoon government, strongly committed to the ANZUS nuclear alliance at the time, was to immediately disestablish the Commission (Achieved) and to overtly suppress the report’s publication (Not Achieved).

As the study group’s convenor, I moved on from traumatic temporary unemployment to Assistant Director (Research and Planning) in the Ministry of Civil Defence. In 1985, aware that the CFF 1982 report did not incorporate major subsequent research findings, I published a book updating it [19] and featuring Einstein’s prescient insight [3] on its cover. The book’s launch in 1985 by Labour’s Civil Defence Minister Peter Tapsell was in marked contrast to National’s hostile response to the 1982 CFF report. A nuclear disarmament issue of Pacific Ecologist [20] in 2013 was timely in marking the 25th anniversary of New Zealand’s nuclear-free legislation and the 50th anniversary of the potentially-catastrophic Cuban missile crisis [22]. Relevant peer-reviewed scientific content of my 1985 book required only minimal amendments 28 years later for inclusion in this 2013 issue.

Three paths to nuclear disaster have been identified [8]: nuclear war between established nuclear states by system malfunctions or political miscalculations [21]; nuclear war by proliferation of weapons among emerging nuclear states [22]; nuclear terrorism by extremist groups [23]. The darkness and global cooling effects from the use of nuclear weapons were graphically first described in 1983 as a ‘nuclear winter’ [24]. Initially thought to persist for a year, more recent peer-reviewed scientific studies show that the effects persist for ten years or more [25], allowing lesser quantities of smoke from firestorms in targeted regions to have a greater impact on both global climate and atmospheric ozone level.

Even a so-called ‘limited’ regional nuclear war wouldhave devastating global consequences by significantly reducing global surface temperatures, reducing rainfall, and increasing UV levels at the Earth’s surface [26]. Scientific studies predict that such use of nuclear weapons would immediately kill 20 million people in a regional war zone (one-half of the fatalities in World War II) and an estimated one billion people through a global famine initiated by climate change in subsequent years [27].

As a retired futurist/physicist, I understand the consequences of the use of nuclear weapons, even in a ‘limited’ nuclear war. I can see no rational argument for having nuclear weapons that can never be used; they have no credible role in New Zealand’s defence. It is imperative that ‘Nuclear Free New Zealand’, now part of the national psyche, not be compromised in any way. What I cannot understand is why, after 67 years of their existence in global nuclear arsenals, humanity’s political and military leaders continue to condone their possession and hence potential use despite utterly compelling reasons not to do so. How could global political (and military) leaders continue to be so stupid?

Graphic example [3] of human stupidity: increasing fossil fuel use

Human-induced global warming was predicted 117 years ago by the Swedish physicist S A Arrhenius [28] who postulated in 1896 that CO2 emissions from burning fossil fuels would cause global warming. The Otago Daily Times [29] ran a headline 56 years ago (1957) that ‘Polar ice caps may melt with industrialisation’. In that same year, chemist C D Keeling began measurements of CO2 concentrations at Mauna Loa (Hawaii) that have confirmed an inexorable increase from 270 parts per million (ppm) in pre-‘industrialisation’ times to 315ppm in 1957 (a 17% increase) and to 400+1ppm in 2013 (a 48% increase).

The physics underlying global warming is relatively simple, as Arrhenius postulated in 1896. A higher concentration of ‘greenhouse’ gases (mainly CO2) has minimal effect on incoming (visible wavelength) sunlight but makes the atmosphere more opaque at infrared (IR) wavelengths. This requires IR (heat) re-radiation back into space to emerge from higher, colder levels thereby reducing its intensity. An energy imbalance (absorbed solar energy exceeds IR heat energy re-radiated into space) causes the Earth to warm, determines future inevitable temperature increases even without further changes in human-induced climate forcing, and defines the emission reductions necessary to restore an energy balance i.e. to stabilise the global climate.

Humans are now the dominant cause of changes in the Earth’s atmospheric composition, principally increasing levels of CO2 from burning fossil fuels. This additional CO2 will remain in the atmosphere for millennia. The inertia of the oceans and the ice sheets on Greenland and Antarctica causes the climate to respond slowly to human-induced forcing, although disastrous longer-term responses may become irreversible. The observed mean global surface temperature has increased by 0.8°C over the past century (1880-1920 baseline) and includes natural variability and human-induced climate change. Human forcing by CO2 emissions is now 10,000 times stronger than natural forcing caused by Earth’s orbital periodicities, changes in solar energy flux etc [30].

Emerging global warming impacts are becoming more apparent to human populations as: plummeting end-of-summer Arctic sea ice [31]; accelerating ice loss from Greenland and Antarctica [32]; globally receding mountain glaciers [33]; reduced seasonal freshwater availability from major rivers [34]; expansion of hot, dry, subtropical climate belts [35]; increasing wildfire areas and intensities [36]; declining coral reef-building [37]; changing patterns of wildlife behaviour [38]; and increasing mega-heatwaves [39] in Europe (2003), Moscow area (2010), Texas (2011), Greenland (2012), and Australia (2013) demonstrably linked to global warming.

The Earth’s weather is also becoming more extreme than climate scientists had previously predicted [40]. The global insurance industry is well aware of the cost of this trend: in 2013 there were 41 billion-dollar-plus weather disasters, the worst year on record for the industry except for 2010. [41]

Despite international climate agreements to limit global warming negotiated at Kyoto (taking effect from 2005), Copenhagen (2009) and Durban (2011), climate diplomacy is now shockingly disconnected from scientific reality [42]. In particular the Copenhagen agreement to restrict global warming to +2°C (making Earth hotter than at any time during the past million years) is completely disconnected from the token efforts to date to achieve even that unsafe goal. Unsurprisingly, despite the Kyoto, Copenhagen, and Durban agreements and an ongoing economic recession, carbon emissions in 2013 were the highest on record [43].

Global warming has been aptly described as the greatest market failure in history. A realistic rising carbon price that reflects the true cost of carbon emissions price would be economically efficient, and would reduce demand for fossil fuels. The absence of effective governmental leadership on realistic pricing of carbon reflects the influence of special interests in policy development and a misinformation campaign by large fossil energy interests using similar tactics and indeed some of the same ‘scientists’ as the campaign funded by big tobacco interests last century [44]. That politicians and the general public are unaware of a consensus among 97% of scientists [45] on the realities of human-induced global warming demonstrates the effectiveness of this campaign.

Currently, governments and industries world-wide are rushing headlong into expanding their use of fossil fuels, exploiting both ‘conventional’ resources (e.g. drilling for oil in deep ocean basins, the Arctic, and pristine areas; destructive large-scale opencast coal mining) and ‘unconventional’ resources (lignites, tar sands, tar shales, shale gas by hydrofracking, coal seam gas, and methane hydrates). The National Government was elected in 2008 on a ‘50-by-50’ commitment to reduce New Zealand’s carbon emissions by 50% by 2050 and is regrettably a full participant in this global rush. New Zealand’s emissions have risen inexorably since 2008: New Zealand now ranks sixth-worst among OECD countries for meeting its Kyoto commitments.

National’s post-2008 initiatives have been equally disheartening: repeal of the previous Labour government’s moratorium on new fossil-fuelled electricity generation; an utterly ineffective emissions trading scheme (ETS); motorway expansions; mining on conservation lands; lignite mining; and expanded offshore oil prospecting that breaches the basic human right of peaceful protest.

In as much as global warming is a political issue, albeit sidestepped by most politicians, arguments have tended to be ideological (e.g. the virtue of market forces) or economic (e.g. cost-benefit analyses) rather than ecological/environmental. Economic arguments customarily have discounted large negative externalities (i.e. costs borne by others) when these are not conducive for a favourable cost-benefit comparison.

In a previous submission [46], I have argued that the reputational costs of Solid Energy Ltd’s lignite projects for the ‘100% Pure’ brand and New Zealand’s major exports substantially exceeded any economic benefits for Solid Energy Ltd’s owners. Furthermore the projects’ cost-benefit comparisons entirely discounted the values of large intangible negative externalities such as the costs of human life and the economic wealth of human civilisation [47]. On any honest economic cost-benefit analysis that included all negative externalities, the lignite projects could not be justified. Fortunately for the environment and for future generations, Solid Energy Ltd is now effectively bankrupt.

The concept of a global ‘carbon budget’ emerged about a decade ago when scientists began to calculate how much more oil, coal and gas could still safely be burned while restricting human-induced global warming (to date 0.8°C) to 2°C as agreed at Copenhagen in 2009. Robust climate science predicts further human-induced global warming of an additional 0.8°C even if human-induced carbon emissions ceased immediately. This additional increase is required to restore Earth’s radiative equilibrium.

The Carbon Tracker Initiative [48] is a team of London-based financial analysts that advises investors about the risk that global warming poses for their stock portfolios. The team’s award-winning analysis in 2011 involved combing through proprietary fossil-fuel databases. It showed that: in 2012 only 565Gt of emissions remain in a safe carbon budget for the Earth’s atmosphere up until the year 2050; the total proven fossil-energy reserves owned by private and public fossil-energy companies and countries [49] represent total emissions of 2,795Gt; accordingly 79.8% of the proven reserves of fossil-energy companies and countries must be considered ‘stranded assets’ and left in the ground. This very large number (2,795Gt) is probably an underestimate [50] of the fossil carbon that fossil-energy companies and countries plan to burn in the future for profit.

The Carbon Tracker Initiative’s 2011 analysis has been substantially re-validated in 2013 by the International Energy Agency (IAE) [51] which concluded that, to have a 50% chance of avoiding +2°C of global warming (considered by the IEA to be “probably too dangerous to adapt to”) the fossil-energy sector can only emit 884Gt of CO2 between 2013 and 2050. The IAE further estimated in 2013 that burning proven reserves of coal, oil, and gas would release 2,860Gt, and accordingly 69.1% of proven reserves must be left in the ground.

The key point (PM John Key please note) is that there is three to five times as much fossil carbon on balance sheets as climate scientists believe is safe to burn. Although 2,795Gt (or 2,860Gt according to the IEA estimates) of emissions is still physically under-ground, it is economically above-ground in share prices, borrowings, and national budgets on presumed financial returns. It is the primary asset of fossil-energy companies and countries. “The drive for profits has so far proven unstoppable. Those who run the big oil companies, like the tobacco companies before them, undoubtedly know what it will mean for humanity. And like the cigarette companies, they go right on.” [52]

Given the indisputable Carbon Tracker Initiative’s 2011 maths outlined above, reaffirmed by the IEA in 2013, fossil-energy companies and countries must be seen in a new light – a pariah industry reckless like no others on Earth to the survival of human civilisation. “The numbers make clear that with the (pariah) fossil-energy industry, wrecking the planet is their business model. It’s what they do.” [53]

New Zealand’s political and business leaders are uniquely placed to show desperately-needed, strong, credible international leadership in reducing carbon emissions because this country, unlike most others, already has 70% electricity generation through renewable energy resources (hydro, geothermal, and wind). New Zealand has previously shown strong international leadership over the existential threat of global nuclear war triggered by superpower confrontation. Nuclear-Free New Zealand is now part of this country’s psyche, and must not be compromised.

Furthermore, there is a self-interest (i.e. economic) justification for strong, credible international leadership in reducing carbon emissions. New Zealand’s principal exports currently depend heavily on its (tarnished) ‘100% Pure’ brand. In a world increasingly facing the harsh realities of global warming, strong, credible international leadership by New Zealand would undoubtedly substantially benefit the economy. Dire science-based warnings that 79.8% (or 69.1% according to IEA) of all proven fossil-energy reserves must be left in the ground demand that all proposed new energy initiatives must be curtailed immediately if this country is to demonstrate such leadership.

To this retired futurist/physicist with six grandchildren and no political affiliations, the National Government’s current ‘mine and drill’ economic strategy that supports foreign fossil-energy companies by taxpayer-funded subsidies – including the deep sea Anadarko rig that has wasted hundreds of millions of dollars on fruitless searches for oil and gas – beggars belief. The Labour opposition’s position on ‘mine and drill’ appears at best to be ambivalent. However, had new oil or gas reserves been discovered by Anadarko, these would either be unusable ‘stranded assets’ or a further contribution to catastrophic global warming. John Key appears blind to the perceptive insights of John Kerry (see [iii] and [iv] on p1). How could the National Government (and Anadarko) continue to be so stupid?

Graphic example [4] of human stupidity: free market economics

A central tenet of capitalism is ‘capital’ or the ‘means of production’ [54] that includes goods, land, and factories. Under global capitalism, people are free to own capital and to trade that capital for profit, spawning an extensive web of trading known as the ‘market’. To operate effectively, the market must be free and unfettered by regulation of any kind. The economist Adam Smith argued in 1776 that a free market was the best model for the human economy [55]. He has inspired an influential group of politicians, economists, and business leaders who, to this day, advocate free market capitalism as the panacea for all economic ills.

However, even Adam Smith recognised that a truly free market is a myth. Nowadays for example, free trade in child labour or plutonium or heroin would be unacceptable to most people. All markets are not only constructed and regulated but are constantly manipulated. Behind the faith in a (mythical) free market is the ideology that the so-called ‘invisible hand’ will optimally match supply and demand. No politician or economist has yet been able to explain its workings, arguing that the “market is simply too complex for anyone to understand.” [56] Although free market economics has delivered a rising standard of living to much of the world’s population for several centuries, it has also delivered huge environmental costs (including pollution, habitat destruction, species mega-extinctions, and global warming) that over future decades or centuries may become existential threats to human civilisation.

Almost without exception, economists since Adam Smith have believed that the free market is in a state of equilibrium, naturally balancing supply and demand. This belief is contradicted by reality. Since 1776 there have been a series of economic crises including global depressions and market crashes. Current free market economic theory – which failed to predict these crashes – is increasingly seen as inadequate. Indeed Her Majesty the Queen has asked her economics advisers why she had received no warning of the last one. [57]

Free market theories using simple mathematics utterly fail to account for basic free market dynamics. Most notably, violent events like the stock market crash of 1987 happen much more frequently than theories suggest – the pronounced frequency of market upheavals is precisely what is most constant in economics. Over the past 15 years, physicists have modelled free market volatility inspired by the mathematician Benoit Mandelbrot’s work on chaotic systems in the 1960s. A credible economic theory of markets would explain why they share similar patterns with earthquakes i.e. long periods of relative quiescence sporadically broken by bursts of intense upheaval. The best emerging models of free markets resemble models of disequilibrium processes driven by positive feedbacks and instability in the real world’s natural systems [58]. Vernon Smith in his 2002 Nobel Economics Prize acceptance speech urged students to “read narrowly within economics, but widely in science because within economics there is essentially only one model to be adapted to every application.” I recall in an ‘economics of climate change’ course being told tersely by the lecturer that “physicists should stay out of economics just as economists should stay out of physics.” In my view, she was completely wrong on both counts.

As any scientist knows, growth of any parameter within any closed system is [ultimately] unsustainable. Human economic growth in planet Earth’s closed biosphere is [ultimately] unsustainable. Furthermore, scientists have concluded that the Earth’s biosphere cannot sustain the current global human population and economy, let alone a growing one. The predicted consequences of exceeding the biosphere’s Limits to Growth have been known for 40 years [59]: sudden and drastic loss of human life and industrial capacity before mid-century. These dire predictions have been recently re-validated by Australia’s CSIRO [60].

Karl Polanyi [61] is an economist who understands a fundamental flaw in free market economics. The introduction of free market economics in the industrial revolution converted land, labour, and money into abstract commodities. This encouraged the belief that such commodities could be exploited without limits to deliver eternal growth measured as Gross Domestic Product (GDP) i.e. monetary value of the production of all goods and services in an economy. “Because markets treat nature as limitless and humans as commodities, they are always pushing societies and nature to the breaking point … The pursuit of profit has brought the planet to the edge of ecological disaster.” [62]

Free market economics has also brought humanity to the edge of economic disaster according to top-ranking inter-dealer broker Tullett Prebon [63]. According to Dr Tim Morgan, Tullett Prebon’s Global Head of Research, the global economy faces a lethal confluence of critical factors including fallout from the biggest debt bubble in history, a disastrous experiment with globalisation, gross distortion of economic data, and the approach of an ‘energy-returns cliff-edge’. Combined, these factors have started to reverse two centuries of economic expansion.

In 1841, Charles Mackay published ‘Extraordinary Popular Delusions and the Madness of Crowds’, identifying a common thread of ‘individual and collective idiocy’ in ‘follies’ including alchemy, witch hunts, prophecies, fortune-telling, magnetizers, phrenology, poisoning, duels, imputation of mystic powers to relics, haunted houses, crusades, and financial bubbles. All but one of Mackay’s follies have been consigned to history by intelligence, experience and enlightenment: the exception is that the last three decades have witnessed the creation of the biggest financial bubble in history.

Described by Tullett Prebon as a ‘credit super-cycle’, this bubble confirms that ‘individual and collective idiocy’ described by Mackay continues to wreak havoc today. “Historic obsessions with tulip bulbs and south sea riches are dwarfed by a latter-day ‘money for nothing’ lunacy … the credit super-cycle has mired much of the world in debts from which no escape exists save hyperinflation.” [64] This 30-year borrowing binge creating the biggest bubble in economic history is about to burst. A massive escalation of Western indebtedness is one of many indicators of a state of mind that has elevated immediate consumption over prudence throughout much of the world. Short-term thinking is blinding humans to critical longer-term risks. Tullet Prebon predicts that, as governments wrestle with the fall-out from the 2008 financial crisis, a dire chapter of recklessness is poised to end in money-printing (‘quantitative easing’), hyperinflation and eventual collapse.

Globalisation meanwhile has also proven a “vast folly” for the West by creating a lethal divergence between burgeoning consumption and eroding production with out-of-control debt used to bridge this widening chasm. Outsourcing manufacturing to emerging countries has enabled companies to boost profits but has also “hollowed-out” Western economies. Globalisation has distorted the normal relationships between production, consumption and debt beyond the point of sustainability. Deliberate data distortion has obscured the scale of the crisis: the Tullet Prebon study cites evidence from the International Monetary Fund and other sources showing that many governments use accounting devices to understate their borrowings, exaggerate their economic growth, and mask the scale of their unemployment.

Unwinding of the ‘energy dynamic’ that makes economic growth possible is the most important trend. A declining ability to source cheap fossil energy is undermining the foundations of the free market economy. The economy is a surplus energy equation, not a monetary one, and growth in output (and in global population) since the Industrial Revolution was made possible only by the harnessing of ever-greater quantities of fossil energy. But the critical ratio between energy produced and energy cost of extraction is now deteriorating so rapidly that the economy as it has existed for more than two centuries is beginning to unravel. Although tar sands and shale gas and oil may exist in vast quantities, their non-viable critical ratios “makes it abundantly clear they most emphatically are not the quick-fix that many governments (and their electorates) might like to suppose”. [65]

Tullet Prebon concludes that economies will lurch into hyper-inflation creating huge social stress and an urgent need for political, economic, and cultural adaptation to ‘life after growth’. Limits to Growth rules, OK? [59]

Considering that economic growth on planet Earth’s closed biosphere is unsustainable, that free market economic theory fails to account for basic free market dynamics, and that the continuation of free market economics is predicted to lead to ecological and economic disaster, how could most politicians, their economic advisers, and business leaders continue to be so stupid?

Conclusion

The survival of human civilisation beyond this century will depend on the extent to which global political, military, economic, and business leaders act on evidence-based advice from scientists rather than act on ideologically-based advice from economists. Science rules, OK? [8]

Endnotes

[1] A list of my previous 13 submissions:

Submission 1: (undated) 2009 1672 words Global Economic Crisis: could it ameliorate the current mass extinction event and coming human cull?

Submission 2: 28 September 2009: 4819 words Global Economic Crisis and Copenhagen: missed chances for averting a human catastrophe?

Submission 3: 15 February 2010 5166 words Anthropogenic climate change: should IPCC be believed? (real action is needed now to avert future climate catastrophe)

Submission 4: 31 March 2010 7473 words Three contrasting responses to anthropogenic climate change: Hon Tim Groser (inadequate; Lord Rees et al (reticent); Solid Energy Ltd (expletive deleted)

Submission 5: 31 May 2011 6465 words A Key letter, Brash physics, lignite mining, Fatih Birol, Lord Stern, the Bishop of Stafford, physics v flawed economics, flying PIGS, how NZ might save the planet, and crimes against humanity

Submission 6: (undated) August 2011 4461 words World on the Edge: How to prevent environmental and economic collapse: Lester R Brown, Earth Policy Institute

Submission 7: 15 March 2012 2300 wordsWorld3: Building a brighter hotter future

Submission 8: 16 May 2012 1384 words Game over for the climate

Submission 9: 10 June 2012 3174 words Discredited economic groupthink and a 10km-wide asteroid headed towards Earth

Submission 10: 6 August 2012 3350 words We shall require a substantially new way of thinking if mankind is to survive (a pariah industry)

Submission 11: (undated) 2012 1903 words Submission on the Proposed Southland Regional Policy Statement 2012

Submission 12: 4 September 2012 1190 words Climate Change Response (Emission Trading and Other Matters) Amendment Bill 52-1 (2012)

Submission 13: 15 April 2013 6958 words Three Existential Threats: briefing note for your information (one mostly resolved, —————two unresolved and increasing) 50,285 words

[2] The remark is attributed to Professor Einstein in conversation with Frederick S. Perls recorded at p33 of Gestalt Therapy Verbatim. Frederick S. Perls, 1969. Real People Press, Lafayette, USA.

[3] Reported in The New York Times of 25 May 1946 under the headline “Atomic education urged by Einstein.” Einstein had issued a personal appeal to prominent Americans seeking funding for a nationwide campaign “to let the people know that a new type of thinking is essential … in the atomic age if mankind is to survive.”

[4] John Kerry (2014). Extracts from a speech by United States Secretary of State John Kerry to Indonesian students, civic leaders, and government officials in Jakarta on 16 Feb, 2014. The entire speech is available at: http://www.state.gov/secretary/remarks/2014/02/221704.htm#.UwEe-hfRKHU.twitter.

[5] John Kerry (2014), op cit.

[6] ‘Perfect Storm – energy, finance and the end of growth’, 21 Jan 2013. A report by inter-dealer broker Tullett Prebon concluding that more than 200 years of economic expansion may be drawing to a close.

[7] John Maynard Keynes quoted in ‘Moving Forward: Programme for a Participatory Economy’ (2000). Michael Albert, p. 128.

[8] See penultimate sentence of this Submission 14: science rules, OK?

[9] Commission for the Future (1981). Future Contingencies 1. Natural Disaster. ISBN-0-477-06222

[10] Commission for the Future (1982). Future Contingencies 4. Nuclear Disaster. ISSBN-0-477-06226-1. 179pp, 508 references.

[11] I have respectfully suggested to the Wise Response initiators that a nuclear disaster be added to the five potential threats to economic/financial security, energy and climate security, business continuity, ecological/environmental security, and genuine well-being identified by Wise Response, in recognition of its overarching consequences.

[12] Molina MJ & Rowland FS (chemists) in Nature 249, p810-12 (28 Jun 1974). ‘Stratospheric sink for chlorofluoromethanes: chlorine atom-catalysed destruction of ozone.’

[13] Abstract of [12]: ‘Chlorofluoromethanes are being added to the environment in steadily increasing amounts. These compounds are chemically inert and may remain in the atmosphere for 40-150 years, and concentrations can be expected to reach 10 to 30 times present levels. Photodissociation of the chlorofluoromethanes in the stratosphere produces significant amounts of chlorine atoms, and leads to the destruction of atmospheric ozone.’

[14] Lead letter published in The Evening Post, the precursor of Wellington’s Dominion Post.

[15] I was interviewed (courteously) by Sharon Crosby on ‘Town and Around’, the precursor to ‘Seven Sharp’, ‘Campbell Live’ etc on Television New Zealand’s then single channel in glorious 50-shades-of-grey.

[16] The word ‘freon’ was listed in Webster’s American Dictionary in 1974, whereas the term ‘Freon’ refers to a propriety product. My Lawyer advised the Plaintiff that, during my TV interview, I was using the term ‘freon’ and appreciated the importance of correct punctuation.

[17] It happened because a major producer sought market dominance in safer ODS alternatives and had a quiet word with the (then) US President – not because rational scientific reasoning prevailed (James Hansen, pers. comm.)

[18] New Zealand’s emission of methyl bromide, a fumigant and known ODS, have doubled over the past 5 years according to records of the UNEP Ozone Secretariat: Year 2006 2007 2008 2009 2010 2011 NZ’s emissions (metric tonnes) 211.0 160.4 288.4 269.6 406.4 469.1

[19] Nuclear Disaster: a new way of thinking down under. G F Preddey (1985). Asia Pacific Books/Futurewatch. (ISBN 0908583117).

[20] Pacific Ecologist, issue 22 (summer 2013): ‘Why it’s vital to rid the world of nuclear weapons’. Editor Kay Wier.

[21] Recorded discussions between President Kennedy and his political and military advisers during the Cuban missile crisis show that Kennedy assessed the likelihood of nuclear war as more than 50% at the same time that a ‘doomsday plan’ was being activated.

[22] For example Israel v Iran or Syria, India v Pakistan, North v South Korea. India has plans for a blitzkrieg invasion of Pakistan assuming Pakistan is bluffing in its professed willingness to use tactical nuclear weapons in its defence. It is disconcerting that Ukraine – currently a source of growing tension between Russia and the West – once hosted the world’s third-most powerful nuclear weapons arsenal. See also Submission 13, [1].

[23] Al-Qaeda and other militant groups are desperately seeking fissile material or assembled warheads. To this end, there have been at least nine unsuccessful attacks by extremist groups on Pakistan’s nuclear weapons infrastructure. See also Submission 13, [1].

[24] Turco R, Toon O, Ackermann T, Pollack J, and Sagan C, (1983). ‘Nuclear Winter: Global consequences of multiple nuclear explosions’, Science, Vol. 222, No. 4630, December 1983, pp. 1283-1292.

[25] Robock A, Oman L, Stenchikov G (2007): ‘Nuclear winter revisited with a modern climate model and current nuclear arsenals: Still catastrophic consequences’, Journal of Geophysical Research – Atmospheres, Vol. 112, p4.

[26] Helfand I, (2007). ‘An Assessment of the Extent of Projected Global Famine Resulting From Limited, Regional Nuclear War’, International Physicians for the Prevention of Nuclear War, Physicians for Social Responsibility.

[27] Helfand I, (2007), op cit.

[28] Arrhenius SA (1896). ‘On the influence of carbonic acid (CO2) in the air upon the temperature of the ground’, Philosophical Magazine, (41): 237-76.

[29] The Otago Daily Times, 23 Jan 1957, p5.

[30] Hansen (2008). Open Atmos. Sci. J. (2008), vol. 2, pp. 217-231, available as a free PDF file from http://pubs.giss.nasa.gov/docs/2008/2008_Hansen_etal.pdf.

[31] Stroeve JC, Kattsov V, Barrett A, Serreze M, Pavlova T, Holland M, et al. (2012). ‘Trends in Arctic sea ice extent from CMIP5, CMIP3 and observations’. Geophys Res Lett 39: L16502. Rampal P, Weiss J, Dubois C, Campin JM (2011). ‘IPCC climate models do not capture Arctic sea ice drift acceleration: Consequences in terms of projected sea ice thinning and decline’. J Geophys Res 116: C00D07.

[32] Shepherd A, Ivins ER, Geruo A, Barletta VR, Bentley MJ, et al. (2012). ‘A reconciled estimate of ice-sheet mass balance’. Science 338: 1183-1189. Rignot E, Velicogna I, van den Broeke MR, Monaghan A, Lenaerts J ( 2011) ‘Acceleration of the contribution of the Greenland and Antarctic ice sheets to sea level rise’. Geophys Res Lett 38: L05503-L05508.

[33] Intergovernmental Panel on Climate Change (2007): ‘Impacts, Adaptation and Vulnerability’. Parry, ML, Canziani O, Palutikof J, van der Linden P, Hanson C, editors. Cambridge: Cambridge University Press. Rabatel A, Francou B, Soruco A, Gomez J, Caceres B, et al. (2013). ‘Current state of glaciers in the tropical Andes: a multi-century perspective on glacier evolution and climate change’. The Cryosphere 7:81-102.

[34] Barnett TP, Pierce DW, Hidalgo HG, Bonfils C, Santer BD, et al. (2008). ‘Human-induced changes in the hydrology of the western United States’. Science 319: 1080-1083. Kaser G, Grosshauser M, Marzeion B (2010). ‘Contribution potential of glaciers to water availability in different climate regimes’. Proc Natl Acad Sci USA 107: 20223-20227. Vergara W, Deeb AM, Valencia AM, Bradley RS, Francou B, et al. (2007). ‘Economic impacts of rapid glacier retreat in the Andes’. EOS Trans Amer. Geophys Union 88: 261-268.

[35] Held IM, Soden BJ (2006). ‘Robust responses of the hydrological cycle to global warming’. J Clim 19: 5686-5699. Seidel DJ, Fu Q, Randel WJ, Reichler TJ (2008). ‘Widening of the tropical belt in a changing climate’. Nat Geosci 1: 21-24. Davis, SM, Rosenlof KH (2011). ‘A multi-diagnostic intercomparison of tropical width time series using reanalyses and satellite observations’. J Clim doi: 10.1175/JCLI-D-1111-00127.00121.

[36] Westerling AL, Hidalgo HG, Cayan DR, Swetnam TW ( 2006). ‘Warming and earlier spring increase western US forest wildfire activity’. Science 313: 940-943.

[37] Bruno JF, Selig ER (2007). ‘Regional decline of coral cover in the Indo-Pacific: timing, extent, and subregional comparisons’. Plos One 2: e711. Hoegh-Guldberg O, Mumby PJ, Hooten AJ, Steneck RS, Greenfield P, et al. (2007). ‘Coral reefs under rapid climate change and ocean acidification’. Science 318: 1737-1742. Veron JE, Hoegh-Guldberg O, Lenton TM, Lough JM, Obura DO, et al. (2009). ‘The coral reef crisis: The critical importance of < 350 ppm CO2’. Mar Pollut Bull 58: 1428-1436.

[38] Parmesan C, Yohe G (2003). ‘A globally coherent fingerprint of climate change impacts across natural systems’. Nature 421: 37-42. Parmesan C (2006). ‘Ecological and evolutionary responses to recent climate change’. Annu Rev Ecol Evol S 37: 637-669.

[39] Rahmstorf S, Coumou D (2011). ‘Increase of extreme events in a warming world’. Proc Natl Acad Sci USA 108: 17905-17909. Hansen J, Sato M, Ruedy R (2012). ‘Perception of climate change’. Proc Natl Acad Sci USA 109: 14726-14727.

[40] See for example New Scientist, 7 Jul 2012, ‘When freak weather becomes the norm.’

[41] According to insurance company Aon Benfield which tracks global disasters, reported in the DomPost (14 Jan 2014).

[42] See for example New Scientist, 30 Jun 2012, p3 (editorial).

[43] International Energy Agency (IEA) data for 2013.

[44] Oreskes, Naomi and Conway, Erik (2010) in Merchants of Doubt. Bloomsbury, 2010. ISBN 10:1596916109.

[45] Anderegg WRL, Prall JW, Jacob H, Schneider SH (2010). ‘Expert credibility in climate change.’ Proc US Nat Acad Sci US 107 (27): 12107–9.

[46] Submission 7:World3: Building a brighter hotter future (15 Mar 2012).

[47] See for example http://www.arxiv.org/pdf/1101.5635

[48] See http://www.carbontracker.org/carbonbubble

[49] For example, Venezuela, Kuwait, Saudi Arabia, Russia, and the New Zealand state-owned enterprise Solid Energy Ltd.

[50] 2,795Gt doesn’t fully reflect the recent exploitation of unconventional energy sources (lignite, tar sands, shale gas, coal seam gas) and fracking.

[51] SeeNew Scientist, 8 March 2014, pp8-9; ‘Redrawing the Climate-Energy Map’. IEA, 2013; ‘Technology Roadmap: Carbon Capture and Storage’. IEA, 2013.

[52] Engelhardt, Tom, 2014, ‘The End of History?’ http://www.tomdispatch.com/blog//175801/

[53] Naomi Klein reported in McKibbon (2012). See also Rolling Stone (2 Aug 2012) or http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math 20120719#ixzz21UvLKPiH.

[54] Karl Marx, 1867. ‘Capital: Critique of Political Economy’.

[55] Adam Smith, 1776. ‘An Inquiry into the Nature and Causes of the Wealth of Nations’.

[56] Ja Hoon Chang, 2010. ‘23 Things They Don’t Tell You About Capitalism’. Penguin Books, 2010. ISBN 978-1-60819-166-6.

[57] Submission 2: Global Economic Crisis and Copenhagen: missed chances for averting a human catastrophe? (28 Sep 2009).

[58] Mark Buchanan, 2011. ‘Mandelbrot Beats Economics in Fathoming Markets.’ See http://tinyurl.com/75n8ecb

[59] Meadows DH, Meadows DL, Randers J, and Behrens WW, 1972. ‘The Limits to Growth’, a report commissioned by the Club of Rome (1972).

[60] Graham Turner et al (2008). CSIRO working paper ISSN 1834-3638, 2008.

[61] Polanyi, K. (1944). The Great Transformation. New York: Farrar & Rinehart.

[62] David Bollier (2009). ‘Why Karl Polanyi still matter’. Commons Magazine, 24 Feb 2009. See http://tinyurl.com/ctktkt8

[63] Tullett Prebon (2013). See http://www.tullettprebon.com/documents/strategyinsights/tpsi_009_perfect_storm_009.pdf) (21 Jan 2013). See also endnote [6].

[64] Tullett Prebon (2013), op cit.

[65] Tullett Prebon (2013), op cit.

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Global riot epidemic due to demise of cheap fossil fuels

 Venezuela protests February 2014 image via aandres/flickr. Creative Commons 2.0 license.

If anyone had hoped that the Arab Spring and Occupy protests a few years back were one-off episodes that would soon give way to more stability, they have another thing coming. The hope was that ongoing economic recovery would return to pre-crash levels of growth, alleviating the grievances fueling the fires of civil unrest, stoked by years of recession.

But this hasn’t happened. And it won’t.

Instead the post-2008 crash era, including 2013 and early 2014, has seen a persistence and proliferation of civil unrest on a scale that has never been seen before in human history. This month alone has seen riots kick-off in Venezuela, Bosnia, Ukraine, Iceland, and Thailand.

This is not a coincidence. The riots are of course rooted in common, regressive economic forces playing out across every continent of the planet – but those forces themselves are symptomatic of a deeper, protracted process of global system failure as we transition from the old industrial era of dirty fossil fuels, towards something else.

Even before the Arab Spring erupted in Tunisia in December 2010, analysts at the New England Complex Systems Institute warned of the danger of civil unrest due to escalating food prices. If the Food & Agricultural Organisation (FAO) food price index rises above 210, they warned, it could trigger riots across large areas of the world.

Hunger games

The pattern is clear. Food price spikes in 2008 coincided with the eruption of social unrest in Tunisia, Egypt, Yemen, Somalia, Cameroon, Mozambique, Sudan, Haiti, and India, among others.

In 2011, the price spikes preceded social unrest across the Middle East and North Africa – Egypt, Syria, Iraq, Oman, Saudi Arabia, Bahrain, Libya, Uganda, Mauritania, Algeria, and so on.

Last year saw food prices reach their third highest year on record, corresponding to the latest outbreaks of street violence and protests in Argentina, Brazil, Bangladesh, China, Kyrgyzstan, Turkey and elsewhere.

Since about a decade ago, the FAO food price index has more than doubled from 91.1 in 2000 to an average of 209.8 in 2013. As Prof Yaneer Bar-Yam, founding president of the Complex Systems Institute, told Vice magazine last week:

“Our analysis says that 210 on the FAO index is the boiling point and we have been hovering there for the past 18 months… In some of the cases the link is more explicit, in others, given that we are at the boiling point, anything will trigger unrest.”

But Bar-Yam’s analysis of the causes of the global food crisis don’t go deep enough – he focuses on the impact of farmland being used for biofuels, and excessive financial speculation on food commodities. But these factors barely scratch the surface.

It’s a gas

The recent cases illustrate not just an explicit link between civil unrest and an increasingly volatile global food system, but also the root of this problem in the increasing unsustainability of our chronic civilisational addiction to fossil fuels.

In Ukraine, previous food price shocks have impacted negatively on the country’s grain exports, contributing to intensifying urban poverty in particular. Accelerating levels of domestic inflation are underestimated in official statistics – Ukrainians spend on average as much as 75% on household bills, and more than half their incomes on necessities such as food and non-alcoholic drinks, and as75% on household bills. Similarly, for most of last year, Venezuela suffered from ongoing food shortages driven by policy mismanagement along with 17 year record-high inflation due mostly to rising food prices.

While dependence on increasingly expensive food imports plays a role here, at the heart of both countries is a deepening energy crisis. Ukraine is a net energy importer, having peaked in oil and gas production way back in 1976. Despite excitement about domestic shale potential, Ukraine’s oil production has declined by over 60% over the last twenty years driven by both geological challenges and dearth of investment.

Currently, about 80% of Ukraine’s oil, and 80% of its gas, is imported from Russia. But over half of Ukraine’s energy consumption is sustained by gas. Russian natural gas prices have nearly quadrupled since 2004. The rocketing energy prices underpin the inflation that is driving excruciating poverty rates for average Ukranians, exacerbating social, ethnic, political and class divisions.

The Ukrainian government’s recent decision to dramatically slash Russian gas imports will likely worsen this as alternative cheaper energy sources are in short supply. Hopes that domestic energy sources might save the day are slim – apart from the fact that shale cannot solve the prospect of expensive liquid fuels, nuclear will not help either. A leaked European Bank for Reconstruction and Development (EBRD) report reveals that proposals to loan 300 million Euros to renovate Ukraine’s ageing infrastructure of 15 state-owned nuclear reactors will gradually double already debilitating electricity prices by 2020.

“Socialism” or Soc-oil-ism?

In Venezuela, the story is familiar. Previously, the Oil and Gas Journal reported the country’s oil reserves were 99.4 billion barrels. As of 2011, this was revised upwards to a mammoth 211 billion barrels of proven oil reserves, and more recently by the US Geological Survey to a whopping 513 billion barrels. The massive boost came from the discovery of reserves of extra heavy oil in the Orinoco belt.

The huge associated costs of production and refining this heavy oil compared to cheaper conventional oil, however, mean the new finds have contributed little to Venezuela’s escalating energy and economic challenges. Venezuela’s oil production peaked around 1999, and has declined by a quarter since then. Its gas production peaked around 2001, and has declined by about a third.

Simultaneously, as domestic oil consumption has steadily increased – in fact almost doubling since 1990 – this has eaten further into declining production, resulting in net oil exports plummeting by nearly half since 1996. As oil represents 95% of export earnings and about half of budget revenues, this decline has massively reduced the scope to sustain government social programmes, including critical subsidies.

Looming pandemic?

These local conditions are being exacerbated by global structural realities. Record high global food prices impinge on these local conditions and push them over the edge. But the food price hikes, in turn, are symptomatic of a range of overlapping problems. Global agriculture‘s excessive dependence on fossil fuel inputs means food prices are invariably linked to oil price spikes. Naturally, biofuels and food commodity speculation pushes prices up even further – elite financiers alone benefit from this while working people from middle to lower classes bear the brunt.

Of course, the elephant in the room is climate change. According to Japanese media, a leaked draft of the UN Intergovernmental Panel on Climate Change‘s (IPCC) second major report warned that while demand for food will rise by 14%, global crop production will drop by 2% per decade due to current levels of global warming, and wreak $1.45 trillion of economic damage by the end of the century. The scenario is based on a projected rise of 2.5 degrees Celsius.

This is likely to be a very conservative estimate. Considering that the current trajectory of industrial agriculture is already seeing yield plateaus in major food basket regions, the interaction of environmental, energy, and economic crises suggests that business-as-usual won’t work.

The epidemic of global riots is symptomatic of global system failure – a civilisational form that has outlasted its usefulness. We need a new paradigm.

Unfortunately, simply taking to the streets isn’t the answer. What is needed is a meaningful vision for civilisational transition – backed up with people power and ethical consistence.

It’s time that governments, corporations and the public alike woke up to the fact that we are fast entering a new post-carbon era, and that the quicker we adapt to it, the far better our chances of successfully redefining a new form of civilisation – a new form of prosperity – that is capable of living in harmony with the Earth system.

But if we continue to make like ostriches, we’ll only have ourselves to blame when the epidemic becomes a pandemic at our doorsteps.

Re-blogged from: Global riot epidemic due to demise of cheap fossil fuels.

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What do global risks mean for NZ’s wellbeing?

‘Wise Response’ is Seeking Your Support for Parliament to Endorse a Risk Assessment for New Zealand Via our Avaaz petition:

Almost daily credible new reports suggesting our “global village” is coming under increasing stress from worrying underlying environmental, social and economic trends that are largely ignored by our politicians.

At the same time, we know our country is heavily dependent on oil, globalized supply chains, distant markets, a stable global financial situation and reliable access to resources, including a livable climate. As complexity grows and stress increases, so too does the risk of failure somewhere in this support system.

More specifically we are worried about trends in climate, energy and financial security, by how resilient our business sector is, by the precarious state of our environmental and social well-being, and the legacy we may be leaving our children. We are concerned that Parliament has not prepared for such risks to our national security, especially as a crisis in any one of these would likely destabilise the others.

Instead of keeping our heads in the sand, our group “Wise Response” is calling on Parliament to commit to a quantitative cross-party risk assessment of how and exactly where it is exposed to these threats as a rational and integrated basis for sound planning. We see the process as inclusive and unifying.

As part of building publicity for this intiative, our plea has been backed by a raft of prominent New Zealanders including Dame Anne Salmond, Sir Lloyd Geering, Bryan Gould, Te Radar, Tim Hazledine, Chris Trotter, Neville Peat, Anton Oliver, Hoani Langsbury, Morgan Williams, Janet Stephenson, Peter Barrett, Fiona Farrell, Keri Hulme, Wayne Smith, Sir Geoffrey Palmer, Gerry Te Kapa Coates, Chris Laidlaw, and many others, including 20+ organisations.

But now we are seeking your support. Parliament needs to hear loudly and clearly that there is popular support – even demand – for them to confront and assess these critical threats.

So add your name to the petition that we are going to present to Parliament on Wednesday April 9 from 1.00p.m. and please come and support the handover of the petition if you can. The full programme is available at http://bit.ly/wr-submissionnews.

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OTHER ACTION YOU CAN TAKE:

Share our website and facebook page to raise the profile of our appeal: http://bit.ly/wiseresponse and http://bit.ly/wiseresponse-facebook

Read the full text of the appeal and the full list of 100 original signatories on our website: http://bit.ly/wiseresponse

Come to the presentation of the Appeal to Parliament to show your support in person. 1:00pm, on Wednesday 9th April 2014, in the grounds of Parliament, opposite Seddon Statue. http://bit.ly/wr-submissionnews

FOR MORE INFORMATION:

Watch the 45 min talk given by Sir Alan Mark over the last year all over the country, presenting the case for the appeal: http://bit.ly/wiseresponsetalk

Listen to the 12 minute ‘Our Changing World’ episode in which the Wise Response appeal is explored, through interviews with 3 of its founding members: http://bit.ly/wiseresponse-ocw

 

Thanks for your attention and support of this critical matter!

The Wise Response Team

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